The Internal Revenue Service (IRS) recently announced that the Offshore Voluntary Disclosure Program (OVDP) will officially end on September 28, 2018.
Acting IRS Commissioner David Kautter said, “Taxpayers have had several years to come into compliance with U.S. tax laws under this program.” He added, “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”
What is OVDP?
The OVDP is useful for taxpayers who have unreported offshore accounts and assets. Introduced in March 2009, OVDP gives a chance to such US tax filers to escape criminal prosecution. It also reduces their monetary penalties, tax, and interest owed.
The law dictates that taxpayers must report certain offshore assets. If the sum total of your interests in all foreign accounts you have interest in reaches or exceeds $10,000, you must file a Report of Foreign Bank and Financial Accounts (FBAR). Further, Foreign Account Tax Compliance Act (FATCA) became the law in March 2010 and states other filing requirements.
As per the IRS, more than 56,000 taxpayers have used one of the OVDP programs to comply voluntarily since 2009. The amount these taxpayers paid in back taxes, interest and penalties came to a whopping total of $11.1 billion. Data also shows that the number of taxpayer disclosures were tremendously high in 2011 with 18,000 people coming forward. However, the fell to a mere 600 in 2017.
How does it work?
Let’s say, a taxpayer didn’t report the income generated by a foreign bank account and failed to file an FBAR for the last 15 years. In this situation, if the taxpayer entered the OVDP, he would be required to:
– go back 8 years to file FBARs and amend tax returns
– pay tax, interest, and only a 20% penalty on the tax owed for said 8 years
– pay an additional FBAR penalty for only the year with the highest balance during those 8 years.
However, if the taxpayer didn’t enter the OVDP, he would:
– face a maximum of 50% FBAR penalties for each year the form was not filed
– pay tax, penalties & interest going back 15 years if the IRS asserted the fraud penalty.
Thus, entering the OVDP significantly reduces the penalties one is liable to face. Remember, that no matter how diligently you’ve been filing taxes on your federal income, you can’t skip reporting your offshore assets. This applies even if the foreign account produces no taxable income. However, some exceptions exist and you can consult a robust tax filing service for expert guidance.
It must be noted that the Streamlined Filing Compliance Procedures (SFCP) will remain in place for now, but the IRS has indicated that even that will end soon. SFCP has been put in place for taxpayers who’ve failed to report foreign financial assets and pay all tax due due to lack of awareness regarding their obligations. It has brought about 65,000 additional taxpayers into compliance.
The chief of the IRS Criminal Investigation Division, Don Fort said, “The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts with the use of information resources and increased data analytics. Stopping offshore tax noncompliance remains a top priority of the IRS.”
Thus, it’s safe to say that there’s no escaping punishment when it comes to unreported offshore assets. Make sure you do the needful soon for now you have only 6 months under the OVDP!
Don’t let the deadline put you on panic mode; allow MyTaxFiler to guide you. For more information, drop us an email at email@example.com or call us at (888) 482-0279.